Albertans will pay $442 each in interest this year due
to growing provincial government debt

#LSN_Opinion Fraser Institute

From $58 in 2008 to $655 in 2020 for every Albertan

THUNDER BAY, ONTARIO - May 24, 2018 (LSN)CALGARY—Every Albertan will pay, on average, more than $400 this year in interest costs on the province’s growing debt, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“Interest paid on government debt is taxpayer money not spent on programs or services that people value, including health care and education, and it leaves less fiscal room for tax relief,” said Ben Eisen, director of the Fraser Institute’s Alberta Prosperity Initiative and co-author of The Decline of the Other Alberta Advantage: Debt Service Costs in Alberta Are Rising.

The study finds that in 2018/19, the average Albertan will pay $442 in debt-servicing costs—interest on the government’s debt—compared to $58 (nominal) in 2008/09.

In fact, starting last year, per person debt-servicing costs in Alberta are increasing by approximately $100 a year, and are expected to reach $655 in 2020/21, when British Columbia—not Alberta—will have the lowest per person debt-servicing costs nationwide.

And if Alberta’s debt trend continues, debt-servicing costs may exceed $1,000 per person within the next 10 years, giving Alberta one of the highest per person costs in the country. (Currently, only Quebec and Newfoundland and Labrador have per capita debt-servicing costs above $1,000.)

Crucially, Alberta was essentially debt-free until 2016/17.

“Before Alberta’s recent run up in debt, the cost of servicing the province’s debt was trivial, meaning almost all tax revenue was spent on programs and services for Albertans, not interest,” said Steve Lafleur, Fraser Institute senior policy analyst and study co-author.

“The fiscal advantage that Alberta enjoyed over all the other provinces vis-à-vis debt interest payments is rapidly disappearing and will soon be gone altogether.” (30)

Summary

Throughout recent history, Albertans have enjoyed a substantial fiscal advantage other Canadian taxpayers, resulting from the fact that government debt interest payments in Alberta have been far lower than in any other province.

For example, in 2007/08, Alberta’s provincial government spent just $61 per person on debt interest payments. The other nine provinces had to spend between $521 and $1,476 per person servicing debt.

This fiscal advantage has saved Alberta’s taxpayers billions of dollars each year in the recent past.

Alberta’s debt interest payments were so low because the province carried very little debt. Until 2016/17, Alberta was “net debt free,” meaning that its financial assets were greater than its liabilities.

In the most recent fiscal years, however, Alberta’s net asset position has flipped from positive to negative and the province is quickly racking up debt.

As a result of rapid debt accumulation, the cost of servicing Alberta’s debt is quickly catching up with other provinces. Current projections suggest that by 2020/21, Alberta’s debt service payments per person will exceed British Columbia’s and will be approximately 70 percent as large as Ontario’s.

If Alberta’s pace of debt accumulation continues at a similar rate in subsequent years, Alberta will join Newfoundland & Labrador and Quebec (and possibly Ontario) as the only provinces paying more than $1,000 per year in per-capita debt interest payments.